A reader asks:
The recession/depression has left many elderly people very concerned. I have two questions:That's a great question, and one I'm sure that many people who lived through the Great Depression have on their minds.Thanks for any information offered.
- Should I remove my savings from banks (place in mattress) so to speak?
- Will the Feds replace full dollar value for savings in banks or a percentage therof?
Fortunately, the FDIC insures 100% of your savings, checking and money market deposits up to $100,000 per FDIC-approved bank. So, as long as you are within their guidelines, your money is safe in a bank. Furthermore, if it is in a bank, you may be able to earn interest, and lose less to inflation. Finally, if it is under a mattress, someone could steal it.
Comments
lets say we went into a depression i’ve heard once the fdic runs out of money everyone else is out of luck and if they do pay it can be up to 99 years before they do .
Hi Mark,
Good point. However, the FDIC would only run out of money if everyone panicked and withdrew their money out of the bank. Since the money is insured, most people probably would not panic. The FDIC would, in and of itself, prevent a panic.
If, however, everyone did panic, the overall economy would be in a world of hurt, anyway. That is most financial planners agree that the best place for your money is in well-diversified investments.
Kimberly
Depends on what your definition of ‘money’ is… The fiat US currency would be printed to fulfil the FDIC’s obligations, and would be worth less as a result. In a genuine recession, having converted your money to real property (gold, real estate, etc.) would protect its value better than a bank could.
If everyone panicked, yes the dollar would be worth less. Then again, real estate could also decline – during the Great Depression real estate prices dropped 25%.
I think gold and real estate make sense as part of a well-diversified portfolio – and I include your home value as part of that.
Kimberly
I’m 41 years old and I’m starting a new job this coming week.
I’m married and have 2 children aged 7 and 10.
I have no substantial retirement savings. However, I have no major expenses- my house being paid off. The only bills I have are for living expenses. I am not “well off” by any means but I’m not hurting either.
The union offers a retirement package but they do not match funds. I do have the option to opt out of this.
With the economy the way that it is I am afraid to invest.
Would it be a good idea to invest in union retirement or a standard IRA at the local bank?
I know that I can write off up to 2500.00 a year with the IRA option and I can “catch up” in a few years but is this safe?
Hi Kevin,
The answer to your question is very specific to your personal situation. Therefore, I would highly recommend that you consult with a financial planner to determine the best course of action. See Choosing a Financial Planner.
Kimberly
When are people going to wake up to the reality that money is backed by nothing but faith? Ever since the US went off the gold standard in the 1970s money has become worthless (and even then it wasn’t much better considering the gold-to-money ratio was way outta whack). If everyone panics, and the FDIC goes broke and inflation rises and rises, money will be even more worthless (if that’s even possible). Stop taking on debts and live within your means! If that means you can’t afford a house, too freakin’ bad! Rent until you have the money to pay for it in cash. If everyone stopped borrowing so damn much prices would drop substantially to far more realistic (and quite affordable/cheap) amounts. Stop being a slave to your faith!
let’s assume you want to buy a house for $150,000. By the time you have saved $20,000, the price of the house could possibly be 155,000. By the time you have saved 150,000, the actual price or real state might have driven the price to $200,000, which means that it is impossible to save the full amount and buy a house based on the price you’ve found it. That’s why loan was invented. The point is never ever buy a house that you cannot comfortably repay.
That’s a good point. If only everyone had followed that, it would have helped prevent the current subprime mortgage crisis.
Kimberly
How would the Banks react? Does it work the same in Canada?
You’re putting the cart before the horse by thinking of it as saving 20k to buy a house that FORMERLY cost 150k but is now 155k. First you save up your money. THEN you look for house. That way you’re looking at what you can afford in the moment. Good luck.
Watch where you live…little towns like Marshall, IL have many houses under $100,000and are great little communities. The same places in areas of California are half a million. Know the insurance rates and taxes for your area. Texas has no income tax but the property taxes can really hurt.
I HAVE A 10,000 IN A CD… WHAT SHOULD I DO WITH IT BEFORE A DEPRESSION… MY WIFE WANTS TO BUY ANOTHER HOUSE BESIDE OUR OWN HOME WHICH MOST OF IT IS OWN BY THE BANK ETC… SO WHAT DO I DO WITH THAT 10 GRAND TODAY? THANKS
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People that say to rent until you buy a house dont know what they are talking about and just spouting something they read in a book. If you buy property the right way and with a bit of luck it would be worth close to the amount to paid for it overall, but the main thing is you and your kids can enjoy the property for those 10 to 20 years that you will be saving up enough money to buy it out right.
If you havent noticed renting, especialy somewhere where you will enjoy your quality of life isn’t cheap.
I agree, Ben. That’s why mortgages were invented – so you can enjoy the home while you are paying it off. It helps the economy, too. There is nothing wrong with a mortgage as long as the bank qualifies the buyer.
Let’s not throw the mortgage baby out with the subprime bathwater.
Kimberly